Outlook for auto suppliers is improving.

Author:Alpern, Peter B.
Position:News & analysis
 
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While large automotive suppliers showed strong financial performances in 2007, nearly 50 percent of smaller, privately held suppliers in North America are facing fiscal distress, according to BBK Ltd., an international consulting firm.

Large suppliers generally improved their balance sheets in recent years by lowering production costs and labor rates, BBK CEO William Diehl said during a presentation for the Automotive Press Association last month.

But that's no longer adequate for many suppliers given the skryrocketing price of raw materials and the fact that automakers are cutting production as sales fall in the United States.

As a result, 17 percent--or 14 of the industry's 80 largest suppliers--may experience serious financial peril in the next year, suggested Diehl.

"That's actually an improvement over '06," Diehl said.

He said in 2006, 22 percent of the automotive industry's large suppliers were facing financial distress.

BBK provides risk management and crisis management services to automakers and Tier I suppliers, while also monitoring the financial condition of suppliers and giving grades ranging from A to E BBK defines distress as any company with a C or lower. As part of its study, BBK evaluated 80 of the world's largest automotive suppliers, as well as 1,147 privately held automotive suppliers.

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Although the financial picture appears stable for many of the industry's largest suppliers, some of the smaller suppliers face more daunting challenges.

Already this year, the bankruptcy of privately held Plastech Engineered Products Inc. temporarily shut down production at Chrysler LLC's plant in Michigan. Diehl predicts an increase in bankruptcies, liquidations and bailouts...

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